Get a loan before house hunting

Gerhard Kotzé

Most people can’t buy a home without a home loan, and yet many people who make offers to purchase have no idea whether they’ll be granted a loan or not.

This can be avoided if prospective buyers get loan pre-qualification from their banks or through bond originators before they start viewing homes.

Most sale agreements contain a contingency clause – referred to as “suspensive conditions” – that provides for the sale to be cancelled if the buyer can’t obtain the required home loan within a certain period.

Consumers should look out for this terminology in their sale agreements.

However, the majority of loan applications currently must be submitted to more than one bank to secure approval, and the process can take much longer than anticipated in the sale agreement – with the result that many sellers are reluctant to accept offers from buyers who haven’t been pre-qualified for a loan.

They don’t want to run the risk of taking their home off the market, believing it’s been sold, only to find several weeks later that the prospective buyer’s home loan application was refused and they have to start marketing the property all over again.

Other loan pre-qualification advantages for buyers include the fact that you’ll know your buying power and can save time and money by viewing only homes you can afford.

Obtaining loan pre-qualification puts buyers in a strong negotiating position, not only with sellers but also with the bank, when it comes to getting the best interest rate on the loan – and potentially saving many thousands of rands on the total cost of your home over 20 or 30 years.

The reason is that once you’ve been pre-qualified, the bank already knows you’re a low-risk borrower with a good credit record and score and a stable employment and financial situation; who can comfortably afford the monthly repayments on a certain loan amount and is unlikely to default.

Gerhard Kotzé is MD of RealNet